The principles of microinsurance are:
(1) Risk-sharing and Pooling of Resources: The main principle of any micro-insurance scheme is that a group’s (community) resources are pooled to share risks (such as health, death, pension, accidents etc) in order to organise protection directly for themselves.
(2) Specified Risks Only: A micro-insurance scheme can be designed to protect only against specified risks for which the likelihood of that risk can be calculated. This specifically applies to health risks.
(3) Not Covariant: Risks covered by a micro-insurance scheme can affect only a relatively small proportion of the total insured population at a given time. If a risk, such as an earthquake or an epidemic for example, is likely to cause a similar damage to a large portion of members at the same time, a single occurrence of the risk would bankrupt the scheme.
(4) Democratic Participation: It promotes democratic participation in the sense that it cannot refuse membership on the grounds of race, sex, ethnicity, religion etc and there is active participation of members in decision-making
(5) Social Movement and Solidarity: It is a social movement as it binds the people who are kept away from the formal systems of social protection. It promotes solidarity as it pools local resources and serves those in need.
(6) Large Membership: Micro-insurance schemes work by sharing risks across a large population. From a technical point of view, one observes that the greater the number of subscribers to micro-insurance scheme, the better will be the functioning. A limited number of subscribers increase the risk of financial burden over the scheme. It the pool of members is too small, the volatility in the number of claims can lead to an unexpected increase in claims, thereby bankrupting the schemes. It is therefore necessary to bring in large number of people into the scheme.
(7) Not-for-Profit: Micro-insurance schemes are usually non-profit. Only in some cases the scheme is organised by players independently of members, therefore it is difficult to rule out that there may be a certain profit margin. However, as a rule, any surpluses made by the schemes are either reinvested in the organisation or used to improve or add to existing services for all the members. The surplus can also be used to improve the quality of care. Usually the rules of micro-insurance scheme stipulates that surpluses should be used to build a reserve fund up to a certain level to withstand times of adversity, to improve current services, to address additional needs of members or eventually reduce the amount of contribution from members.
(8) Control of Major Risks: The ability of members to control major risks will help only those who are in dire need of the benefits.
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